Toyota sees first-ever full year loss as auto sector skids

YoshioTakahashi

NAGOYA, Japan (MarketWatch) -- Toyota Motor Corp. (7203.TO) on Monday warned it expects to make its first-ever operating loss in the fiscal year through March as recessions at home and abroad corral Japan's biggest automobile maker into as tight a corner as it has ever known.

Citing the strength of the yen and a recession-sprung slump in vehicle sales in key markets like the U.S., Europe and Japan, Toyota said it now expects a consolidated operating loss of Y150 billion, or about $1.68 billion, in the fiscal year through March.

Just six weeks ago, the company that has long been seen as a bellwether of Japan's corporate strength said it expected an operating profit of Y600 billion in the current fiscal year. This reflects the acceleration of the decline in sales that had brought warnings from U.S. auto makers like General Motors Corp. (GM), Toyota's traditional rival in the chase to be the world's biggest car maker by sales. GM had warned it might run out of cash by the end of the fiscal year before securing a temporary bailout from the federal government late last week.

"It's a kind of emergency that we've never experienced before," said Toyota President Katsuaki Watanabe, speaking at a news conference here in the company's home prefecture in western Japan. "The environment surrounding us is extremely harsh.

Watanabe said that while rapidly changing market conditions make it difficult to predict how the company will fare next year, he said he is hopeful Toyota can turn an operating profit. It has already sought to cut costs by scaling back production and laying off temporary workers at factories in Japan, as well as postponing new factory investments in places like Mississippi, where it was scheduled to start producing its successful Prius hybrid sedan in May 2010.

Still, Watanabe warned, "It's not yet possible to tell where the market's bottom will be."

A few days after Honda Motor Co. (7267.TO), Japan's second-biggest auto maker by sales, also cut forecasts for the second time in two months, Toyota said Monday it expects to book a net profit for the current fiscal year of just Y50 billion, less than a tenth of the Y550 billion it previously forecast.

Few are expected to escape the downturn slicing through the auto sector: On Monday, small car specialist Suzuki Motor Corp. (7269.TO) and Toyota affiliate Daihatsu Motor Co. (7262.TO) both announced fresh production cuts, while tire maker Bridgestone Corp. (8108.TO) also lowered its financial forecasts on sliding sales.

Toyota on Monday also reduced its revenue projection to Y21.500 trillion from Y23.000 trillion. This reduction is in line with a cut in its estimates for global vehicle sales to 7.54 million in the fiscal year, down 8.5% from the 8.24 million it previously expected to sell.

As well as a slowdown in vehicle sales, Toyota, like the rest of Japan's major exporters, has been unable to sidestep the stubbornly strong yen's sharp gains against other major currencies in recent weeks. The strength of the yen means that sales in dollars and euros are worth less in Toyota's books.

On Monday, Toyota said it now expects the dollar to be worth Y93 on average through the second half of the fiscal year. It predicts the euro will be worth Y123. In early November when it already lowered guidance, Toyota expected the dollar to be worth Y100 on average through the second half, while it forecast the euro would be worth Y130.

At 0730 GMT, the yen was changing hands in currency markets for just over Y89, while the euro was quoted at just under Y126.

Despite the severity of Toyota's first-ever operating loss, investors were actually comforted that the scale of the problems isn't worse, analysts said.

The subject of days of local media speculation, reports that the loss would be Y150 billion actually lifted Toyota shares off their lows for the day just before the company confirmed details after the Tokyo Stock Exchange closed.

Koji Endo, an analyst at Credit Suisse, said, "The figure was not a big shock" since some investors were expecting an operating loss of between Y400 billion and Y500 billion for the period. With all the bad news swilling around the sector, "The market has been prepared" for a worse-case scenario, said Endo.

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